Financial Markets in India: A Banking Perspective
by Yuvi K - December 16, 2023
Indian Financial Markets – A Banking Viewpoint
The financial markets of any nation serve as the backbone of its economy. India is no exception. This article takes a banking point of view to understand and analyze the Indian financial markets.
Why are Financial Markets Necessary?
Financial markets require capital, i.e money, to be invested, and for this money to be profitably deployed by investors. Financial markets also provide a platform for investors to buy, sell and trade in financial assets. This creates liquidity in the market and promotes economic growth by providing businesses with access to capital. As a result, financial markets eventually become a key component of a nation’s infrastructure.
What is the Indian Financial Market?
The Indian financial market consists of all organised exchanges and over-the-counter (OTC) transactions that take place in the country. It includes all the segments such as capital markets, derivatives markets, mutual funds, debt securities, Forex, commodities, etc. This system is supervised by regulatory bodies like Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority of India (IRDAI).
Role of Banks in the Financial Market
The banking sector plays a critical role in the financial markets. Banks provide a wide range of financial services like loans, deposits, payments, foreign exchange, etc. Banks move funds efficiently and securely from investors to borrowers. This helps investors to gain returns while providing businesses with capital to fund their operations. Banking institutions provide a stable and secure channel for investing and managing investors’ funds. They also play a role in the regulation and supervision of financial markets by providing data and insights into market conditions.
Financial Products
The most popular financial products in India that are available through banks and other financial institutions are:
| Financial Product | Description |
|---|---|
| Savings Account | A savings account is an interest bearing bank account used to store money in a safe and secure environment. |
| Fixed Deposits | A fixed deposit (FD) is an investment instrument where a client deposits money with a bank or financial institution for a predetermined period of time and earns fixed returns. |
| Debentures | Debentures are long-term loans which are usually issued by companies and are secured by company assets. |
| Mutual Funds | A mutual fund is a pooled investment product managed by a professional fund manager where investors by units of the fund. |
Tariff Structures
Banks have different tariff structures for different products offered. In most cases, the fee charged for providing the service will depend on the type of service provided and the account size of the customer.
Market Segmentation
The Indian financial markets can be broadly segmented into three segments i.e. the retail sector, the wholesale sector and the corporate sector.
- Retail Sector: Retail sector comprises of individuals and small businesses who are looking to invest, borrow or deposit money in the financial markets. This recognizes the need for access to credit and other monetary services for individuals and businesses.
- Wholesale Sector: This sector comprises of larger commercial banks and financial institutions. This sector facilitates large-scale investment and capital formation in the economy.
- Corporate Sector: This sector comprises of companies and institutions dealing in issuance, buying and selling of financial instruments. This sector is the major driver of capital formation.
Conclusion
The Indian financial markets are an interconnected system, with each segment playing an important role in the overall success of the system. The banks play a critical role in the system by providing efficient and secure channels for investing and managing investors’ funds. The various financial products provided by the banks offer investors with a wide range of options for investing and managing their money.
